Oil Down in 7 of 8 Sessions to Lowest Close in Seven Months

Futures for West Texas Intermediate crude oil dropped again on Thursday, marking the seventh time in eight sessions that the black gold got cheaper and lowest price point since May 1. February contracts, the most actively traded on the New York Mercantile Exchange, slipped to lows of $91.24 before closing at $91.66 (-0.7%) to accelerate losses since the contracts had hit $100.75 on December 27, which was the highest level since October 18.

After managing to eke out a mildly green day on Tuesday, future fell 1.5 percent on Wednesday as crude supplies decline less than expected. The U.S. Energy Information Administration reported Wednesday morning that crude inventories nationwide fell by 2.7 million barrels, against analyst expectations for a 3-million-barrel decline, for the week ended January 3. At 357.9 million barrels, that’s the lowest level of national stockpiles since September 13. Inventories have shrunk in six straight weeks.

Supplies in Cushing, Oklahoma, the delivery point for WTI contracts, increased by 1.1 million barrels to 40.7 million barrels.

Refineries are still processing oil at a blistering pace, running at 92.3 percent of capacity to process 16.1 million barrels of crude each day last week. On December 27, 16.2 million barrels of crude were processed, the most in one day in seven years.

Against a bearish backdrop of no real supply concerns in the States, crude also felt pressure from rising gasoline and distillate stockpiles. Gasoline inventories increased 6.24 million barrels to 227 million last week, the highest level in about 10 months and exceeding analyst predictions of an increase of 2.3 million barrels. Distillate supplies, which include diesel and heating oil, jumped up by 5.83 million barrels to 125 million barrels, representing the highest level since October. Analysts forecast distillate supplies to climb 2.1 million barrels.

Trouble Continues in Libya

Overseas, Brent crude, the benchmark oil in Europe, fluttered around even, keeping the premium to WTI near one-month highs. Conflicts throughout Libya, the land with the largest oil reserves in Africa, helped buoy oil prices in December as production in the country grinded to its lowest level in more than two years. The country only produced 210,000 barrels of oil during the month, compared to 1.5 million during the summer.

Negotiations with armed tribesman who had blockaded the El Sharara oil field of Libya Oil & Gas Corp. were successful last week, allowing production to resume. The company produced 277,000 barrels on Tuesday and expected to be running at 100 percent capacity (340,000 bpd) on Wednesday.

Things may be calming with meeting the demands of tribesman, but such is not the case with armed eastern pro-autonomy groups. On Tuesday, the group, led by Ibrahim Jathran, ignored a warning shot from the Libyan navy at the eastern port of Es-Sider and invited foreign oil companies to come and purchase oil from ports that they have seized. The group, which has set up its own self-proclaimed government, has pledged to protect tankers with its heavily armed militia.

In rebuttal, Libya’s Prime Minister Ali Zeidan has warned oil companies that the country’s navy will sink oil tankers that approach the terminals controlled by Jathran. Zeidan said that there will be “no leniency” for anyone who tries to come get oil without coordinating with the National Oil Corporation.

Technical Support

Technical traders will be looking for oil to hold an area of support at Thursday’s closing price. Spot crude dipped as low as $91.77 at the end of November as February contracts went as low as $92.10. Oil has already broken a nice uptrend line that began in late-June 2012. There are varying levels of secondary support, but a main support will not come in until near $85. Tomorrow the Labor Department delivers its heavily watched monthly report on the employment situation. Economists are expecting a robust report, calling for 193,000 jobs to have been created in December. A report in line with expectations, or even above, should provide some bottom feeders incentive to take a piece of oil, given six straight weeks of declining inventories and hopes that energy demand will increase in light of a strengthening economy.

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